Aetna Warned it Would Withdraw From Exchanges if Humana Deal Was Blocked
17 August 2016 - 11:20PM
Dow Jones News
Aetna Inc. warned Justice Department antitrust officials in
early July that if they sued to block its deal to acquire Humana
Inc., it would immediately reduce its presence in the Affordable
Care Act exchanges and cancel a planned expansion.
Aetna's actions surrounding its exchange business have drawn a
political spotlight since it announced Monday that it will withdraw
from 11 of the 15 state exchanges where it sells marketplace
plans—a decision unveiled a few weeks after the Justice Department
filed a suit against the Humana merger.
On Monday, Aetna cited mushrooming financial losses and
structural problems with the exchange markets as causes for its
retreat, not the Justice suit. Prominent Republicans, including
Donald Trump's campaign, said the move, which came after similar
ones by other major insurers, reflected flaws of the ACA.
But critics, including Sen. Elizabeth Warren, a Massachusetts
Democrat, have suggested that Aetna's stance on the exchanges was
affected by the Justice Department's decision. "The health of the
American people should not be used as bargaining chips to force the
government to bend to one giant company's will," she wrote in a
Facebook post.
Aetna wouldn't be the only insurer to link its exchange position
to a hoped-for deal. Anthem Inc. has publicly said that if it is
able to consummate its acquisition of Cigna Corp., a combination
that is also facing a Justice Department suit, the merged company
would likely expand into nine new exchange states.
In a July 5 letter to the Justice Department, reviewed by The
Wall Street Journal, Aetna said that if the Humana deal drew a
legal challenge, "instead of expanding to 20 states next year, we
would reduce our presence to no more than 10 states." In addition,
the letter, signed by Aetna Chief Executive Mark T. Bertolini, said
the insurer believed "it is very likely that we would need to leave
the public exchange business entirely and plan for additional
business efficiencies should our deal ultimately be blocked."
The company said in the letter that an antitrust suit or a
successful prevention of its deal would create financial strains
that would force it to pull back from the exchanges, where it was
losing money. "Although we remain supportive of the
Administration's efforts to expand coverage, we must also face
market realities. Our customers expect us to keep their insurance
products affordable and continually improving, and our shareholders
expect that we will generate a market return on invested capital
for them," the letter said.
A Justice Department spokesman declined to comment.
On Aug. 2, Aetna publicly disclosed that its ACA plans had lost
approximately $200 million in the second quarter of 2016 and were
expected to lose more than $300 million this year. The insurer said
then it would cancel its exchange expansion plans and reconsider
its existing presence because of the financial performance. Mr.
Bertolini cited those losses Monday, saying the exchange pullback
"will limit our financial exposure moving forward."
Early Wednesday, an Aetna spokesman said the letter came in
response to a Justice Department request. After it was sent, "we
then gained full visibility into our second quarter individual
products loss, which is what ultimately drove us to narrow our 2017
public exchange presence," he said.
Nearly half of the company's total individual-plan losses since
the exchanges launched in January 2014 came in the second quarter
of 2016, largely as a result of higher-than-expected medical costs
among enrollees and the inadequacy of a health-law program designed
to ease that risk, he said: "That's not politics, that's financial
reality, which some choose to ignore."
In the letter, Aetna told the Justice Department that it was
"challenged to get to break even this year" on its exchange
business. Mr. Bertolini wrote that, despite Aetna's past support
for the exchanges, "unfortunately, a challenge by the DOJ to that
acquisition and/or the DOJ successfully blocking the transaction
would have a negative financial impact on Aetna and would impair
Aetna's ability to continue its support, leaving Aetna with no
choice but to take actions to steward its financial health."
Specifically, he wrote, if the Justice Department sued to block
the Humana combination, "we will immediately take action to reduce
our 2017 exchange footprint," canceling the planned five-state
expansion, and "we would also withdraw from at least five
additional states where generating a market return would take too
long for us to justify, given the costs associated with a potential
breakup of the transaction."
On the other hand, Mr. Bertolini wrote, if the deal closed
without an antitrust challenge, Aetna would "explore how to devote
a portion of the additional synergies...to supporting even more
public exchange coverage over the next few years."
A trial in the Justice Department's lawsuit is scheduled to
begin Dec. 5, with a ruling expected in mid-January.
Write to Anna Wilde Mathews at anna.mathews@wsj.com
(END) Dow Jones Newswires
August 17, 2016 09:05 ET (13:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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